Are Government Regulations Strangling Free Enterprise?


Everywhere you turn these days, it seems like business environments are becoming increasingly choked with regulatory morass. Tragically, these barriers to free enterprise and economic freedom are having a chilling effect on the ability of business owners and individuals to achieve financial success.

In my opinion, government’s proper role when it comes to business and commerce should be restricted to the following:

(1) Protect property rights.

(2) Adjudicate disputes between two or more parties.

(3) Provide a legal framework whereby voluntary trade is protected.

Efforts by statists to redistribute wealth or control or manage the voluntary exchange of goods or services are inappropriate in a free society.

I recently had the opportunity to talk with Anthony Sanders, Senior Attorney with the Institute for Justice, about how IJ is responding to the full-on assault taking place against economic liberty, private property, freedom of speech and other individual liberties at federal, state and local levels across the country. Here is an excerpt from our discussion:

Anthony, what sorts of barriers are being erected that are hindering free market competition in America?

Clearly, there are lots of emerging and long-standing barriers in all facets of economic life. The ones that are especially pernicious and that we focus on here at IJ are occupational licensing restrictions. Back in the 1950s, 1 in 20 people needed a license to work; today it’s 1 in 3 people. This trend is being driven in large part by people whose motive it is to use licensure to fence out the competition. We regularly see instances where government places undue restrictions on businesses and people who are just trying to earn an honest living. This is an ever-growing threat to entrepreneurial freedom.

Are there particular types of businesses that are being most affected by these barriers?

Those most affected by these laws are often small practitioners who don’t have the credentialing required by cartels. Unfortunately, the majority of these folks have neither the savvy nor the money to battle against these barriers. This is where we at IJ step in from a First Amendment context to protect the rights of those seeking to earn an honest living in their businesses and professions.

Are there others being targeted?

Businesses that are largely represented by lower-income Americans who also happen to be not particularly well-connected politically are the ones that typically get singled out. This is particularly true for immigrant groups who came to the U.S. because they wanted to work and live well. Often though, because they don’t understand some of the more subtle aspects of pursuing the American dream, they get fenced out.

Of middle to lower income occupations that are licensed,  women, minority and immigrant groups are the most affected. Cosmetology, for example, is an occupation that’s predominantly practiced by women; nail salons are overwhelmingly run by Vietnamese. Often, participants in these demographics fail to recognize how the game is being played, especially on the municipal and local level where one needs to be able to play the game at city hall in order to get a permit. If you’re not savvy and connected or your father isn’t an attorney, navigating the system is often going to be a real challenge. These folks are going to end up worse off than someone who knows how to pull the levers.

Can you point to particular states where these restrictions are particularly onerous?

Interestingly enough, the record is very mixed across a lot of states. What we know for sure is that these barriers are having a disparate impact on low to mid level entrepreneurs with average incomes. This list includes cosmetology professionals, tradesmen, construction workers and others who perform various services. These are people who because they are at the  beginning of their careers may not make a lot of money. So an occupational license or restrictive law can be a real barrier to entry to some.

And what actually drives these restrictions?

While a certain amount of this is driven by people who are truly trying to protect the public or health and safety, unfortunately a greater share, in fact most of it, is driven by people already in a particular line of business who see that there are people who they would rather keep out. Perhaps they feel that outsiders don’t belong because in their mind these people are newcomers that know little about the business. But essentially what they are doing is erecting barriers to competition in a way that pads their own pockets by keeping others out.

Morris Kleiner, an economist at the University of Minnesota discovered that if you compare states that don’t license a profession versus the ones that do, those licensed for a profession in a state raise their income on average by about 15%. So if you are an established professional in that field, why wouldn’t you want that licensing restriction? “

Are there examples of where this is taking place?

Sure. In a lot of cities, to trim or cut down a dead tree on someones property, you need a basic license that involves paying a fee and showing proof of insurance. Beyond that, you don’t need any other qualifications. A few years ago though, in the City of Minneapolis, an additional requirement was added for tree-trimming companies, where someone on the payroll needed to have a certification from an arborist organization. This required you to know a lot more than how to use a chainsaw. Suddenly, you had to know forest management, soil conservation and other things that make sense if you are trying to manage an arboretum or a forest but doesn’t  make any sense if someone just needs their tree stump removed. Of course, established tree companies were totally fine with this becuase they often already employed a certified arborist. On the other hand, the mom and pop businesses, despite not focusing on the work in which an arborist engages, were fenced out of the market. All of this is an example of how someone can be regulated out of the market because of pressure from those erecting barriers to outside competition.

Has there there been any movement towards change along this front?

Yes, there are reforms that we can point to in a number of states where things have improved. Nevada is just one example, as they recently lifted some key restrictions for those in the makeup industry. It used to be illegal for those in the makeup field to practice if they didn’t have an aesthetician license which requires hundreds of hours of training. In response to a lawsuit that we at IJ brought, the state legislature has removed this barrier, which is a great step in the right direction.

And back to the tree-trimmer issue, because of a lawsuit that was brought there, the city of Minneapolis later backed off and made some concessions for small businesses in that field.

What about outside of the occupational licensing space?

Outside of occupational licensing, there are also a lot of requirements and restrictions on food truck vending. This concept – where trucks arrive at a busy spot in a city and sell food – has been all the rage for many years now. Unfortunately, many cities have enacted restrictions that are designed to protect established brick-and-mortar businesses from these new market entrants. Proximity restrictions are an example of this, where food can’t be sold from a food truck within, say, 500 feet of a restaurant.

Some cities are now waking up and recognizing that there are more common sense ways to regulate these things. For example, Washington D.C. was going to put in place some onerous licensing restrictions on food trucks. But in response to tremendous pressure, they backed off on that. Now D.C. is a great place to sell food from a food truck.

There’s also been lots of media buzz in major cities across the nation about how ride-sharing companies like Lyft and Uber are butting up against laws designed to restrict their growth. What effect is this having on free market competition in the transportation industry?

The proliferation of taxi cab laws being applied to ride-sharing services such as Uber, Lyft and even Sidecar, has had a definite effect on free market competition. While these laws certainly have some value, particularly as it relates to consumer protection, they often make little sense in terms of caps on the number of vehicles that can enter the market or other anti-competitive restrictions.

So where do you think all of this is ultimately headed?

We saw an evolution of the ride-sharing movement in 2014, which has in part continued into this year. While there certainly was some initial resistance on the part of cities in terms of the entry of ride-sharing in their markets, a lot of cities are slowly coming around to accepting it. For example, Chicago now has an ordinance which by and large allows ride-sharing. Minneapolis and Milwaukee now also have one. Seattle passed a new ordinance that they have now adapted that’s much more acceptable. And California is still evolving in terms of their acceptance. I expect more and more cities to continue along this trajectory.

Sounds like there is a lot of promise here?

Yes, there’s a lot of excitement around the innovative transportation solutions being provided by these companies. And because these services have been so popular, politicians are starting to come around in terms of accommodating them. The bottom line is that people and businesses don’t want to be regulated. Fortunately, both Uber and Lyft have major money behind them, and are thus able to fight against the entrenched forces that are committed to keeping them out of the market.

What’s happening in terms of the impact of Uber and Lyft on the jobs economy in the metropolitan markets they’re in?

Ride-sharing is a significant source of income for many people who have entered into it, and a source of side-income for others. I’ve met a lot of people who are between jobs, so for a few months they work relatively full-time at Uber, Lyft, or even Sidecar. Many of these drivers are young entrepreneurs who need a second job, and have found that working as a ride-sharing driver is a very viable alternative to waiting tables.

And are drivers benefiting from this?

They are. I know of one driver who runs his own business setting up trivia nights at bars. He has a staff of 15 people. That business is becoming very lucrative for him but he also does ride-sharing 10-15 hours a week because he enjoys interacting with people and promoting his trivia nights. That’s what’s cool about ride-sharing; it provides a lot of flexibility and allows people to come together and talk about their lives, find things in common and build community. And they can accumulate some extra income which can free them up to venture off and do work that has nothing to do with driving a car. That’s what free market freedom is all about.

What about the short-term rental housing firm AirBNB? They have been been subjected to regulatory issues as well, correct?

They certainly have. It’s definitely been a very interesting time for AirBNB. Some cities have taken a pretty common sense approach by requiring the licensing of these rentals in a very hands off manner. This typically involves registering with the city and paying a tax equivalent to a hotel tax, for example. It seems like property owners feel like they can live with that pretty easily. However, other cities are enacting huge restrictions on short-term rentals, from banning them outright to putting a quota on how many can exist in a particular neighborhood.

With the 2016 election season upon us, there has been a lot of media discussion about U.S. immigration, particularly in terms of Mexico. What sort of effect do you think this will have on the economic freedom front?

Immigrants in this country, whether they are legal or illegal, are some of the hardest workers in the U.S. This is in large part because they often arrive from countries where they literally can’t do anything without the government’s permission. As long as we have immigrants, we’re going to have people fighting against barriers, and we’re going to have people who the IJ wants to represent because there will always be a steady stream of people fighting for economic liberty.

Any final thoughts in terms of what you see on the horizon for the next 12-18 months?

I think its going to be an exciting time, mainly because of protections under the First Amendment that are now being fully recognized. IJ has done a lot of work in the area of free speech, so there is a lot more discussion out there about free enterprise and economic freedom that wasn’t taking place a decade or so ago. It’s great to see that there are people wanting to speak out, whether it be about their favorite candidate or a key political issue. For it’s through this process that we’re better able to foster a better, more informed public.

Finally, how can we we as individuals assume a greater voice as stakeholders in the cause for free markets and liberty?

Great question! One thing that a lot of people could do, that they often don’t, is pay attention to what’s happening at their state legislature and local city hall. Most regulations that affect economic liberty occur at the state and local level. When you hear about a piece of legislation that should be questioned, call your state representative.

Sadly, the fact of the matter is that laws that have an adverse impact on economic liberty receive very few phone calls and complaints. Most legislators hear from the lobbyists working for the trade group that wants to pass the regulation, yet they seldom hear from citizens wanting to preserve economic freedom. A phone call can go a long way toward nipping bad legislation in the bud before it gains traction.

Michael Scott is a Denver based journalist focusing on the intersection between free markets and economic freedom. He can be contacted on Twitter @biz_michael